You just won the lottery jackpot $100,000,000! Most of us dream of this happening and imagine all the fabulous things we would buy and do.

But first you must decide how to receive the money, no doubt a perplexing decision for many winners. The rest of us see them on TV gleefully accepting & displaying the “big check” with their smiling advisers looking on.

It should go without saying winning a big sum is an emotional experience with a decision to make soon. This decision comes down to “Cash Option” or “Annuity” with no in between choice allowed by the lottery.

The government assesses taxes at the rate of 7.75% Wisconsin state tax and 25% Federal tax making the total tax 32.75% which is deducted/withheld from your winnings immediately.

Cash Option – Winner receives about 50% of the advertised jackpot amount. In our $100 million example that leaves the winner with $50 million to subtract taxes from. The net jackpot after taxes is $33 million; not too bad.

Annuity – Wisconsin Megabucks winner receives the full advertised jackpot $100 million in 25 annual installments. In our $100 million example the winner gets $4,000,000 per year minus current taxes, nets $2.7 million per year for 25 years. Nice yearly paycheck.

The annuity option pays out twice as much, $67,250,000 after tax, this is the equivalent of earning a guaranteed 8.6% rate of return per year.

Yet nearly every winner picks the cash option. Unless they are going to spend all the winnings right away; and if that’s what they want to do – I hope they enjoy their moment.

If on the other hand they want the moment to be larger and last a lot longer; the annuity is the way to go. Later if there is a change of heart all or part of the annuity’s future annual payments can be sold to investors for lump sums. Savvy investors recognize the value of annuity payments solid investments. In today’s market enviroment an 8.4% guaranteed rate of return is a very good.

It is unfortunate some advisers steer their clients away from annuities. They either do not understand how annuities operate to achieve high returns for clients. Or perhaps the reason is once an annuity is setup there are no ongoing fees or commissions paid to representatives.

My advice – If you win the big jackpot don’t settle for the one time “small” payout. Take the big payout over time with the annuity option. After a year or so when your emotions settle down. You can think logically and clearly again, you can change your mind and sell all or parts of the annuity payments for that upfront cash.

Usually receiving the annuity payments rather than the lump sum payment is better. Annuity payments from lotteries and prize drawings are set to payout for a specified number of years so if you were to die your family or other named beneficiaries would receive the balance of your payments.

I am 48, if I win don’t I have to live to 73 to collect all the winnings? I am under this impression that Illinois doesn’t allow the winnings to be left to someone else in case of death.If I get hit by a car at 64, my heirs lose a decent chunk of change.

John,
If you were to die before you have received all of your annuity payments from the Illinois Lottery your heir or your estate would receive any remaining payments or depending on the prize could take the remaining amount as a lump sum. You do need to prepare a will or trust to designate your heirs.
It is a common misconception that annuity payments are only good during one’s lifetime.
Here is a link to Illinois Lottery Winners’ Handbook Page 4 & 5 Estate Planning and Forms describes the process.
Are you in the enviable position of having won?

One More Question Tim If More Than 1 person wins the lottery. & it’s 100 million Are the winnings Split amongst the other winners? Thus Reducing the payout To Each Person? Or Is Each Individual person Entitled to $100 million

Here’s what I will do if I ever win a mega million dollar lottery prize. I will be the first ever person to sue the lottery for unlawful federal income tax withholding. If you know the law, then you know I will prevail in “State” court. Why? Many reasons under current law. Notably because for Federal tax purposes, “Income” is a legal term. Does anyone out there know what income is of which has been defined by the US Supreme Court? If you have no income, then there can be no tax owed. All Federal tax forms are voluntarily submitted. That’s right, you give permission to have the tax withheld when you sign the form containing the jurat “Under penalties of perjury”. If the lottery withholds the tax on the full amount of the prize you won without your consent, they can be sued for extortion and conversion of funds. If the lottery tells you that you cannot receive your prize money unless you sign the tax form, then sign it but include the words next to your signature, “Signed under duress”. This allows you to file suit against the lottery. Why does the lottery state to you that the IRS requires them to withhold Federal income tax? Supposedly because the Lottery has been told by the IRS that if the tax is not collected, the prize winner may try to avoid the tax and the IRS would end up empty handed. It’s apparent, you, the prize winner cannot be trusted in paying any tax you are liable for. Did I say any tax you might be liable for? Are you liable for subtitle A, Title 26 taxes that are only lawfully paid by Federal employees? Lawfully paid by Federal employees only? Subtitle C, Title 26, specifically provides for Federal employees to pay the tax when they make a voluntary agreement with the employer by signing a W-4 tax form. Hey, wait a minute! A W-4 tax form, isn’t that the form most people of the several states file with their employer to have the Federal income tax withheld on their wages? Absolutely, but there is a problem with these people that pay Federal income tax on non-federal income. They commit perjury, because they are claiming that they have Federal income, (a corporate gain or profit) earned by Federal employment. So, the lotteries in all of the 43 current states are committing fraud against the big prize winners. What a shame that people will hand over to the IRS such large sums of federal reserve notes called dollars, when the IRS does nothing to deserve the cash! Just remember, if you know the tax law, you can sue the lottery for withholding tax without your consent, and you can sue for the amount withheld and other damages you might want to include. I can bet you that the lotteries of the several state governments will wake up to the truth if such a law suit ever happens, and the public will see the end of unlawful Federal income tax on citizens of the private sector that have no Federal occupation. Gee, I hope I’m the only winner of the powerball tonight!!

It does seem unfair to withhold the taxes right away as its taking capital away from someone before the tax year is at an end…they could have bought some shares/etc and had a return on that money before their taxes were due, to take it immediately is to force money that is not theirs away from you.

You have to pay taxes by the end of the tax year, hence the drop in share prices just prior to new year, this is like taking your mortgage payment for your house one year up front, it would not be allowed under law, yet they can do that with a lottery win?

What about Publisher Clearing House, do you have to choose cash or annuity? And do they force you to pay taxes that by law you should not have to pay. Should I sign (Signed under duress) on that check and form as well?

Some prizes through Publisher’s Clearing House offer annuity payments and as you receive these payments taxes both Federal and State are due on normal tax payment deadlines. Prize winnings are consider income. Even if you win a material object like a car or house you must pay taxes on the win.

My question is a little different. Everywhere I read, I am told to get a team of financial advisors, should I win the lottery. I have heard countless horror stories of F.A.’s stealing money from clients. Is it possible to hire a financial advisor and only get advice without them ever actually seeing (as long as I pay them ) , the money? Second, is there a place to actually put your money and keep it safe? I’m not worried about making money off the interest, I would just want a place to keep the money so, I could think about how to invest and who to trust. Is there a place to store the money and still get it insured without creating a 100,000 bank accounts, that are insured? Lastly, as there is so much identity theft going on these days, will banks allow a person to keep accounts that are not accessible to the internet? This would seem to cut down on hackers stealing money. It would be nice to go to a bank and with proper I.D., tell them to move X amount of money from your non internet account, to your internet account. I know this is pie in the sky but, I would like to be able to just keep my money sonewhere, out of harms way until, I figured things out. Is that possible?

Never ever let anyone take control of your money. Make sure you always have final approval for any investment or transfers.
There are F.A.s who work as fee based consultants only and do no investing. They will usually recommend someone to do that for you and many times they receive additional compensation for the referral. Make sure there is a clear understanding of all this on the front side going in.

It is better to have a team that includes:
CPA who will give specific tax advise, a good CPA does not give investment advice if they do find a new CPA.
An attorney for the preparation of any required legal documents, a good attorney does not give investment advice if they do find a new attorney.
A stockbroker for advice on equity investments.
An insurance based financial consultant who will help transfer the risk from you to an insurance company and work with your attorney on setting up trusts, estate plan and income flow.None of the above should have any of your money in any of their accounts, all accounts will be in your name and your spouse’s if applicable.

If you select the annuity payments as described in my post not only will your money be 100% safe you will net more money and pay all of those advisors a lot less. Which may be why so many advisors- advise a winner to take the lump sum.

Because annuity payments are safe, reliable and valuable there are investor groups who buy annuity payments. So if you need more money in the future you could sell part or all of your future annuity payments for a lump sum. Usually these private investor groups will pay more than what a winner would get from the lottery lump sum.

When my family wins The Big One, I would initially take the annuity option because the winnings will be SAFE in the lottery commission’s “bank” without needing FDIC insurance, LOL !! But after a couple of years, I may seek out some commercial-industrial real estate rental properties and cashout my lottery annuity for a discount, pay the gains taxes and buy those “hard assets”. I’m very concerned the US will soon face hyper inflation where the same cash buys fewer goods. Although I may be trading tit for tat and more management stress, I prefer to control my own net worth and have NEVER imagined retiring. Thanks for your advice Tim, it’s nice to read alternate perspectives, Thumbs Up!

If I won, I would take it ALL in CASH and put it in numerous safety deposit boxes so the banks couldn’t make one penny on my money. Then I would set up something whereby I could make loans to others at very, very, low interest rates. Bypass the Federal Reserve, etc.

Ive been poor all of my life and snubbed by people looking down on me and my 8 kids. We didn’t seem to fit in, were made fun of because of our little run down house and our clothes that were given to us. My husband was a drunk and abandoned us and never came back., I’m in a wheelchair and cant walk, but I loved my kids so I couldn’t give up. Im getting a free divorce now in Texas because of my low income, so when I win the lottery, him and all the rest of the gossiper’s wont get nothing! Amen!

A question that I cannot get a specific answer too, HELP !!!!!! ok.. If I was holding the winning jackpot ticket for $10 million dollars, and I ask a friend to collect it for me so that I may remain discrete, we go to lawyers and my friend signs that she agrees…do she get the check in the mail at her house (question 1) or.. can she get the check by direct deposit (question 2) if by direct deposit can she give them my account number or does her name have to be on an account to get it deposited ( question 3) or can she use another address to have the check mailed too or will they mail it to the address on her license picture ID (question 3) or can she have the check sent directly to the lawyers office (question 4). I am just wondering how I can do this. Also if the taxes are paid in her name in Philadelphia pa, when she turns all the money over to me , will I have to pay all the same taxes again if she lists the money as a gift to me ( question 5)… these are all the questions I need help with before I do anything so that I know if I should collect my own winnings but I really have a trusted friend that will sign papers to agree to this but I am unsure how the check is handed out ..let’s base all these questions on taking the lump sum… Thank you for answering all the questions

Lottery prize money is NOT INCOME!!!!!! If you allow a lottery to withhold federal tax on your winnings, then you are doing so as a ignorant citizen of the tax law.
Sign the lottery’s required tax withholding form with an addition to your signature, John Handcock “Signed under duress in order to get paid”. This will give you ability to sue in “State” court, where the IRS has no jurisdiction.

Here’s your problem. IRS considers lottery payouts to be “gambling winnings” and the law provides for them to require 25% withholding on gambling winnings. (Go read IRS Publication 505 if you don’t believe me.)

Sure, you can sue the lottery commission in state court, where the IRS has no jurisdiction, but you’ll lose because the commission will rightfully claim they were obeying federal law in requiring the withholdings.

No, you are the ignorant one because you don’t know federal law regarding withholding, for if you did, you would have quoted the applicable law requiring federal withholding of tax on the lottery prize. You are the ignorant one as you have no doubt not read subtitle C of 26 U.S.C., where section 3402(q) is cited about extension of withholding to certain gambling winnings. Subtitle C concerns employment of federal workers and a employee is defined at section 3401(c) as that of federal employment. Since the lottery is not a employer to the winner of a prize, there can be no lawful authority to withhold as that makes the lottery as an federal impostor withholding agent. Title 4 U.S.C. section 72 limits federal jurisdiction within the Union states. The Supreme Court decision of federal jurisdiction is settled in “Bailey v. Drexel Furniture” which proves that the Federal Government has no jurisdiction over Union state sovereignty. Furthermore, subtitle A, the subtitle of 26 U.S.C. concerning income tax has no provision for making anyone liable for the tax.
Now, you should study the law and refute what I have quoted, if you can!

Lotteries do not usually allow a winner to stay anonymous. One of the conditions of playing the lotto is winners can be publically used to promote the lottery in order to get more future players. Most lottery rules forbid payments to trusts. The winner must take receipt of money, pay taxes and then write a check a trust.
Keep in mind planners are trained to keep themselves and their firms involved to generate fees.

In the event of winning and you opt for the lumpsum, after deducting Uncle Sam’s 35% share, will there be any further taxes applicable? In other words, will there be recurring taxes? I find it unclear per other articles I have read as they have mentioned charity as a means to reduce taxable incomes. Please and thanks for future responses.

By taking a lump sum a winner is paying all taxes immediately. There will be no further taxes due on those funds. If any interest or investment income is generated in the future that money will be subject to taxation.
2013 federal tax rate 39.6% and don’t forget state income taxes, depending on your state those will be between 5-13%. In a high tax state your lump sum would be reduced by 54% leaving you with 46% of your winnings.
If you win my advice: take the payments instead of the lump sum and consider moving to one of the few states with no income taxes.

Here’s my question. So you hit the lotto and take the cash option. After the initial taxes are withheld in my case 25% to the Feds and 3% to the State of NJ. Can I invest a large portion of the money to prevent paying a tone of money at the end of the year in income tax.. Ruff figures for you. 14,100,000 cash hit with the initial 28% leaves a check for 10,152,000.. Can you invest say 8,000,000 in some type of annuity/dividend type investment maybe something were you can’t touch the money for a specified term.. and only pay income taxes on the interest and the remaining 2,152,000 that you initially took and used as income and put in accounts that are readily accessible.

Keep in mind the winnings will push you into the highest federal tax bracket.
Under current tax law interest earnings from a nonqualified annuity are not taxed until withdrawn. Whatever is withdrawn is considered interest first for tax purposes. If the annuity owners is under 59 1/2 the interest will have a 10% penalty tax assessed. You could take your $8M put it into this annuity for a term of your choosing. To lessen taxation you could then setup an income stream from the annuity. Part of the income would be principal and part interest each month. Only the interest would be taxable at ordinary income rates and by taking any income stream you avoid the 10% penalty tax if you are under 59 1/2 at time of withdrawals.

Thanks for all the information! So the current federal capital gains rate is 39.6%? What will Wisconsin’s taxes be (currently)? Unfortunately, I haven’t won (yet) but would like to know what’s happening if I do!

Stop paying federal tax on private non-federal income and keep your hard earned income which is not income as defined by the United States Supreme Court. To pay otherwise causes you to commit a crime, namely perjury. Knowledge is power!

Here’s my question. So you hit the lotto and take the cash option. After the initial taxes are withheld in my case 25% to the Feds and 3% to the State of NJ. Can I invest a large portion of the money to prevent paying a tone of money at the end of the year in income tax.. Ruff figures for you. 14,100,000 cash hit with the initial 28% leaves a check for 10,152,000.. Can you invest say 8,000,000 in some type of annuity/dividend type investment maybe something were you can’t touch the money for a specified term.. and only pay income taxes on the interest and the remaining 2,152,000 that you initially took and used as income and put in accounts that are readily accessible.

Keep in mind the winnings will push you into the highest federal & state tax brackets.
Under current tax law interest earnings from a nonqualified annuity are not taxed until withdrawn. Whatever amount is withdrawn is considered interest first for tax purposes. If the annuityowner is under 59 1/2 the interest will have a 10% penalty tax assessed.
You could take your $8M put it into this annuity for a term of your choosing. To lessen taxation you could then setup an income stream from the annuity. Part of the income would be principal and part interest each month. Only the interest would be taxable at ordinary income rates and by taking any income stream you avoid the 10% penalty tax if you are under 59 1/2 at time of withdrawals.

How do I include siblings in jackpot and not have to pay gift tax? We have all agreed to buy individual tickets and share the winnings. Do we set up some sort of trust, LLC, etc.? Trying to avoid the additional 40% gift tax once $5 Million lifetime limit is reached.

Go as a group to claim your winnings. Let them know you all pooled your funds to buy the winning ticket. The lottery will pay the winnings directly to each person for their share. They will then take care of their own taxes. There are no gift taxes due in this scenario.

I liked your article. I have been thinking about which option to choose and was heavily decided on the annuity option even though my husband was desiring the cash payout, but your article helped solidify my decision to do the annuity.

I was wondering the same thing as the previous person asked, after winning a large jackpot, do they directly deposit the check in my account or do they give me a check directly? Also, if they give me a large check, could I just go and deposit such a large amount right away after I have paid all my attorney fees. What would be the process for making a deposit of a large size; let’s say 28 million dollars? Thanks Mr. Barton, your advice is priceless

What if in the past I had medicaid and now no longer have it. How much of that will be taken away in addition to the regular government taxes? How many years does the government go back to collect or do they get the entire thing?

Cash payout vs. Annuities. Wouldn’t the decision also rest on whatever your goals for the money are? For example, I would want to give a cash prize to my sisters and my mother and also establish trusts for my chilren, nieces and nephews. So for me I would think the cash payout would be the way to go since i’m shelling out a lump some of money up front. With the annuity, I’m bound by a “budget” of how much I can invest, gift and spend…

Do you call the lottery and tell them you won or just show up and say I won. Do they give you a check right there and you take it to the bank for you to decide what to do with it? Can you put 10 million in the bank and withdraw it all at one time without paying a penalty?

If you win you do need to contact the lottery officials to present the winning ticket. Winners need to complete paperwork including tax withholding forms. You can put all of the money in a bank. However, funds over $250,000 are not covered. For more information- https://www.fdic.gov/deposit/covered/

If I win my dreams has always been to donate some of the money to the poor hungry people, and also help the poor animals that has been abuse, and donate to my church St.Anne. Then I would paid off all my debts, and also pay off my family debits too. So all they would have to paid is there normal tax, utility, and grocery. Then I would take a vacation for a whole month. I pray to God every day and may a promise to my self that this is what I would do, specially for the hungry poor people.